What to do if you are struggling to repay your payday loan

Borrowers may apply for short-term and payday loans for various different reasons. Maybe their boiler has broken or their car won’t start, but they can’t afford the repairs until the end of the month. Short-term loans are just one way to help cover these essential costs, and most borrowers fully intend to repay the loan on the agreed repayment date.

If you’re a Moneyboat customer who has a short-term loan with us and you’re worried about keeping up with your repayments – please contact us as soon as possible. You’re not alone and we’re here to help you.

There are steps you can take to help you get back on track, many of which we’ll outline in the following guide.

In this guide: 

• How do payday loans work?
• What happens if I can’t repay my loan?
• Can I reduce my monthly loan payments?
• Should I consider a debt consolidation loan?
• Can I cancel my CPA?
• What are the alternatives to payday loans?
• Explore helpful resources

How do payday loans work?

Before we dive into what happens if you can’t repay your loan, let’s take a quick look at how payday loans work:

1. When you take out a payday loan, you’ll usually agree to repay the full amount on the designated day. Your payday loan provider will then use something called a Continuous Payment Authority (CPA), which you will have approved at the point of agreeing the terms, to take the money from your bank account on this predetermined date. 
   
   
2. Lenders are required to display their APR (Annual Percentage Rate). This illustrates the price of a loan over the course of an entire year, shown as a percentage of the loan amount, and should include all interest charges and other fees and costs. The APR that borrowers are offered can vary widely, but generally the APR for payday loans is higher than the APRs for other types of borrowing.
   
   
3. Payday loans are usually offered online and are often quick and easy to access. While this may be ideal if you need fast cash, it also means that borrowers may not take the necessary time to consider the potential responsibilities and costs involved.

What happens if I can’t repay my payday loan?

Interest is payable on the loan amount at a rate set for the fixed term , and this will also be taken from your account on the repayment date. If there is no money in the account to cover the loan, payday lenders will usually start to add extra interest charges, as well as late payment penalties.

What happens if I miss a loan payment?

If you’ve missed a loan payment, you’ll often incur a late payment penalty. This will be immediately added to the amount now repayable as soon as you have missed your repayment date. Interest is usually charged at a set percentage per day, and debts can quickly escalate within a few days or weeks of non-payment.

Another repercussion of failing to meet repayment obligations for payday loans is the impact it can have on your credit score. Anyone struggling to repay payday loans is likely to see their credit score dip, making it more difficult to secure good credit deals in the future.

What is a default?

A series of missed loan payments, typically over a period of three to six months, can result in what’s known as a default. A default occurs when your account is considered seriously overdue, and it signals that you’ve failed to meet a debt obligation.

In the UK, a default will stay on your credit file for six years following the date that it was reported. This is why it’s so important to stay on top of payments.

You can read more about how defaults work and how to recover your credit score in our default guide.

What should I do if I can’t repay my payday loan?

If you find that you can’t pay your loan, all is not lost. There are a few measures you can take to try to prevent the debt from mounting up.

1. Contact your lender

You may feel worried about contacting your lender and admitting that you can’t pay your payday loan, but avoiding them will only make things worse. Office of Fair Trading regulations now require lenders to give borrowers ‘reasonable time’ to repay debts and ‘treat borrowers fairly and with forbearance if they experience difficulties.’

The best outcome is that you can work out a new payment schedule for your loan, buying you enough time to prepare your finances and repay the loan. Just be aware that your interest charges are likely to increase. But in the meantime, you’ll know that you’ve made a new arrangement with the lender that you can fulfil.

2. Get support from third-party organisations

Alongside contacting your lender, another option when struggling to pay off your payday loan is to contact a debt charity that can offer independent advice and support.

Organisations such as Step Change, the Debt Advice Foundation and Citizens Advice can help you understand your rights and options.

Can I reduce my monthly loan payments?

If you’re wondering how to lower your loan payments, you’ll need to contact your lender to see whether it’s possible. They may be willing to reduce your monthly payments by extending the term of the loan.

However, bear in mind that while your monthly payments might decrease, the interest may well increase. So, think carefully about whether it will be worth it in the long run.

Should I consider a debt consolidation loan?

If you have multiple different debts, debt consolidation allows you to consolidate your existing commitments into a single, more manageable payment. It can help you get back on track, making it easier for you to stay on top of things.

However, there are potential disadvantages you may need to weigh up too. For instance, consolidation doesn’t address the route of the problem, and it may also prolong your debt by several years.

And remember, like with any loan, you’ll have to apply and wait to see if you’re approved. While debt consolidation loans are available to those with bad credit, the higher your score, the more likely it is you’ll be accepted.

For an in-depth look at this topic, learn more with our bad credit score guide and our debt consolidation guide.

Can I cancel my CPA?

Yes, you’re within your rights to cancel the continuous payment authority at any time. Some people find they need to take action on this when they realise their lender is about to take a payment and leave them with no cash for urgent expenses, such as a mortgage payment or a family food shop.

It’s important to note that when you cancel a CPA, you will still owe the creditor or lender the money that was expected to leave your account. Plus, the rest of your loan or credit agreement too.

If you must cancel a CPA with your bank, contact your lender immediately afterwards to discuss the issue. That way, you may be able to find a solution that works for both of you.

What are the alternatives to payday loans?

Payday loans may work for some people, particularly those who are able to afford and commit to the repayment schedule. However, they can be an expensive way to borrow money, so it’s always sensible to consider your alternatives.

Here are some of the options that might be worth looking into if you need quick access to emergency cash:

• Arranged overdraft with your current account
• Credit cards
• Flexible short-term loans – such as those provided by Moneyboat
• Borrowing through a Community Development Finance Institution
• Credit union loans
• Borrowing from a friend or family member
• Requesting a pay advance

Explore helpful resources

Remember, it’s never a good idea to take on a loan that you know you won’t be able to repay. Doing so is likely to result in a much more serious financial situation that no short-term solution will be able to fix. When taking out a payday loan, you need to be sure that you’ll be able to repay the full amount, as well as any interest, on the date you have agreed to repay it.

If you find yourself stuck in a cycle where you regularly rely on credit and loans to help keep you afloat, creating a budget can help you manage your finances.

Luckily, there are some brilliant, easy-to-use budgeting apps out there, which can help you track your income and outgoings and manage your monthly expenses. We’ve also got a guide on effective monthly budgeting that’s filled with actionable tips.

For more help and support, be sure to contact StepChange, Citizens Advice, and MoneyHelper for independent financial advice.